Making Tax Digital is being extended
Feb 09, 2021
Making Tax Digital (MTD) is a government initiative to modernise HMRC’s tax system, with the aim of making the whole process of administrating tax simpler and more efficient. All of your tax information will be in one place (your digital account) and you will be able to pay tax based on your business activity during the year. You can upload and update your tax account in real time.
Making Tax Digital for VAT
MTD for VAT has already begun and has been live for nearly two years. It started in April 2019 for businesses with trading revenue above the VAT threshold limit (currently £85,000).
From the 1 April 2022, MTD for VAT will apply to all VAT registered businesses regardless of their level of turnover. So those businesses classed as voluntary, with a taxable turnover below the VAT threshold, will need to ensure that they are MTD-ready in time.
Being MTD-ready means keeping all your VAT records in digital form and uploading the information directly to HMRC. You can either use dedicated record-keeping software to do this, or a combination of software packages or even spreadsheets. However if you use spreadsheets, the software must be capable of taking the relevant information from the spreadsheet electronically, and sending it directly to HMRC without further manual adjustment through an Application Programming Interface (API) platform. Many businesses rely on bridging products to fulfil this function.
The deadlines for sending VAT returns and making payments won’t change, and the information submitted to HMRC is the same as on the nine boxes of the current VAT return.
Making Tax Digital for income tax
From 1 April 2023, MTD will become a legal requirement for income tax as well as VAT. It will apply to self-employed businesses, partnerships and landlords with annual business or property income above £10,000.
If you are required to join MTD for income tax you will need to submit a quarterly summary of your business income and expenses to HMRC via your digital tax account, using MTD-compatible software. This will be the law and there will be penalties for non-compliance.
Eventually this will abolish the annual tax return. More frequent reporting may also lead to more frequent payment of tax in due course, but that is not the intention at the initial stage.
The Government is running a pilot scheme for businesses to trial using the online service for MTD for Income Tax. If you’re a self-employed business or landlord you can voluntarily use software to keep your business records digitally and send Income Tax updates to HMRC instead of filing a Self Assessment tax return.
Making Tax Digital for Corporation Tax
MTD for Corporation Tax is also on the horizon. It is currently in the consultation process (which closes 5 March 2021) and it is likely to become mandated in April 2026. Businesses will be given the opportunity to take part in a pilot scheme for MTD for Corporation Tax before it becomes law.
Although having to implement MTD may sound tedious or complicated, complying with the new rules can actually help you save time and streamline the way you do business. Please let us know if you have any queries about implementing MTD and how it may affect you, and we will be very happy to help.